The Board of Trustees at Commonwealth REIT has filed a Consent Revocation Statement calling the shareholder solicitation from Corvex Management LP and Related Fund Management, LLC (Corvex/Related) “a disruptive and value destructive exercise” that would be “for their own short-term gain.”
As one of Commonwealth REIT’s largest shareholders, Corvex/Related is seeking to replace Commonwealth REIT’s entire board with its own nominees. Commonwealth REIT’s current five-member board includes Adam and Barry Portnoy, which own the firm’s outsourced management company, REIT Management & Research LLC.
Corvex/Related calls this relationship a conflict of interest that breaches a contract the REIT has with its shareholders.
But Commonwealth’s Consent Revocation Statement provides a timeline that outlines the moves it has taken to increase shareholder value. The REIT says it has taken steps to better understand the views of its shareholders, accelerated the company’s value-enhancing business plan and made governance and management compensation changes.
The Newton, Mass.-based REIT also says that Corvex/Related and its affiliates “have a poor record of managing public companies and should not be considered credible candidates to manage CommonWealth.”
Specifically, the company writes:
– Jeff Blau, the principal of Related, is also the CEO of The Related Companies, L.P., a real estate developer based in New York (the “Related Companies”). Mr. Blau previously served simultaneously as an officer of the Related Companies and as Chairman, CEO and a Trustee of American Mortgage Acceptance Company (“AMAC”), a publicly owned mortgage REIT. During Mr. Blau’s tenure at AMAC, AMAC funded loans to affiliates of the Related Companies, including two large subordinated loans to development projects in Aspen, CO and Phoenix, AZ which subsequently defaulted and became worthless. Despite that these large loans were made to an affiliate of the Related Companies and Mr. Blau while he was a trustee of AMAC, AMAC never filed documentation for these loans with the SEC. Shortly thereafter, AMAC ceased operations and filed for bankruptcy; however, the Related Companies’ affiliates received the benefit of the funding.
– Jeff Blau and Stephen Ross, the Chairman of the Related Companies, also served simultaneously as officers of the Related Companies and as Managing Trustees on the board of Centerline Holding Company (f/k/a Charter Municipal Mortgage Acceptance Company, or “CharterMac”), a publicly owned real estate finance company. CharterMac also provided financing directly and indirectly to affiliates of the Related Companies. CharterMac internalized its management in November 2003 by purchasing, for aggregate consideration of $338 million, a management company majority owned by the Related Companies. During Mr. Blau’s and Mr. Ross’s combined tenure at CharterMac from 2003 until they departed that board in 2009, the total returns realized by public shareholders was a loss of approximately 97.7%. Also during their tenure on the Board, the New York Stock Exchange (“NYSE”) delisted CharterMac for failure to meet NYSE listing standards.
– Keith Meister, the founder and Managing Partner of Corvex, has an equally troubling history with publicly-traded real estate companies. In January 2007, for example, Mr. Meister and his former employer, Icahn Group, acquired a 14.6% ownership in WCI Communities, Inc. (“WCI”), a publicly owned real estate development company in January 2007. Similarly, Mr. Meister and his colleagues criticized WCI management and stated that Icahn Group’s goal was to change management and enhance shareholder value. In March 2007, Mr. Meister and his colleagues launched a tender offer for WCI at $22.00 per share. The tender offer was subsequently withdrawn and Mr. Meister began a proxy contest for control of WCI. By August 2007, Mr. Meister and his colleagues were elected to the WCI Board and assumed effective control of WCI. Within approximately one year after Mr. Meister was elected to the WCI Board, WCI filed for bankruptcy and all WCI shareholder value was lost.